2023 (5) TMI 369 - HC - Income Tax

Stay of demand - When tax payable and when assessee deemed in default - discretion to be exercised under Section 220(6) - HELD THAT - When it comes to discretion, the exercise thereof has to be guided by law; has to be according to the rules of reason and justice; and has to be based on the relevant considerations. The exercise of discretion is essentially the discernment of what is right and proper; and such discernment is the critical and cautious judgment of what is correct and proper by differentiating between shadow and substance as also between equity and pretense. A holder of public office, when exercising discretion conferred by the statute, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The requirements of reasonableness, rationality, impartiality, fairness and equity are inherent in any exercise of discretion; such an exercise can never be according to the private opinion. In the present case at hand, unfortunately, Respondent No. 3 has not considered anything and has just mechanically declined to grant stay by placing reliance upon Office Memorandum by recording, inter alia, that since the assessee has not deposited 20% of disputed demand as stipulated in the said Office Memorandum, stay is liable to be rejected. As noted here that under Section 246 which provides remedy of preferring an Appeal against the Assessment Order, there is no pre-deposit stipulated therein. AO has read the Office Memorandum dated 31st July, 2017, to mean that in each and every case, where an Assessment Order is passed and its appeal is preferred, 20% of pre-deposit is required for granting stay of the balance demand. This understanding is completely contrary to the provisions of Section 220(6) of the Act, itself. Thus the discretion to be exercised under Section 220(6) of the Act is to be exercised in a fair and judicious manner and in accordance with the principles laid down by us in preceding paragraphs. Admittedly, in the present case, neither the Assessing Authority nor the Reviewing Authority has exercised its discretion in a judicial manner and, hence, orders passed by the said authorities are liable to be set aside. Accordingly, the order passed by ACIT, Ranchi (Respondent No. 3) and the order bearing passed by PCIT, Patna, are hereby, quashed and set aside. The matter is remitted back to Respondent No. 3 to pass a fresh order.

Summary

Issues Involved:
1. Quashing/setting aside the order directing payment of 20% of the disputed amount.
2. Direction to not enforce and realize the outstanding demand during the pendency of the appeal.
3. Expeditious disposal of the appeal filed by the petitioner.
4. Quashing/setting aside the order directing payment of pre-deposit and monthly payments.

Issue-wise Summary:

1. Quashing/Setting Aside the Order Directing Payment of 20% of the Disputed Amount:
The petitioner sought to quash the order dated 31.01.2023 by Respondent No. 3, which directed the petitioner to pay 20% of the disputed amount for the Assessment Year 2020-21 based on the CBDT Office Memorandum dated 31.07.2017. The court noted that the Assessing Officer had not exercised discretion under Section 220(6) of the Income Tax Act and had mechanically relied on the CBDT Office Memorandum, which was contrary to the provisions of the Act and judicial precedents.

2. Direction to Not Enforce and Realize the Outstanding Demand During the Pendency of the Appeal:
The petitioner requested a writ of mandamus directing Respondent No. 2 not to enforce and realize the outstanding demand during the pendency of the appeal. The court observed that the Assessing Officer should exercise discretion judiciously and not act merely as a tax-gatherer. The court emphasized that the exercise of discretion should be based on relevant considerations like prima facie case, balance of convenience, and irreparable injury.

3. Expeditious Disposal of the Appeal Filed by the Petitioner:
The petitioner sought a direction for the expeditious disposal of the appeal filed before Respondent No. 4. The court directed that the appeal should be decided within six months from the date of the order, subject to the petitioner's cooperation in the appellate proceedings.

4. Quashing/Setting Aside the Order Directing Payment of Pre-deposit and Monthly Payments:
The petitioner challenged the order dated 24.02.2023 by Respondent No. 1, which directed the payment of Rs. 5 crores as pre-deposit and Rs. 10 lakhs per month until the disposal of the appeal. The court found that the Reviewing Authority had not applied its mind independently and had not considered the prima facie case, balance of convenience, and undue hardship. The court quashed the order and remitted the matter back to Respondent No. 3 for a fresh decision.

Conclusion:
The court quashed the orders dated 31.01.2023 and 24.02.2023, directing Respondent No. 3 to pass a fresh order on the stay application in accordance with the principles laid down. The court also directed the expeditious disposal of the appeal within six months, with the petitioner's full cooperation. The writ petition was allowed, and pending interlocutory applications were disposed of.